Ep 5 – Conversation with Anne Larilahti (Previously VP Sustainability, Finnair)
Join us in this week’s episode where we speak with Anne Larilahti, who recently exited her role as Vice President of Sustainability with Finnair.
Anne shares her insights from her recent leadership roles in sustainability in the aviation sector (Finnair), and in the telecom sector (Telia, Nokia). She talks about the social and environmental impacts, for example how transportation’s social benefits include global trade for people learning and quite frankly, peace and living together but on the other hand is still based on fossil fuels while the telecom sector has bought digitalization and made distances insignificant by bringing people together instantly.
Anne tells us that there is a historic opportunity regarding climate change and realizing the UN Sustainable Development Goals (SDGs) and the financial aspect to make them feasible and she says ” I think most large companies understand it and if they don’t the market will make them understand.”
The conversation then goes towards biofuels, solar, electric, and other renewable opportunities for the aviation sector, the role of CEOs, and industry collaboration platforms. Anne also takes us into the world of social, and environmental KPIs and examples of direct metrics and proxies that are used in the industry. She sees positive change happening regarding sustainability and business, where companies are really starting to understand the value of sustainability not just as a license to operate, but also as a business driver.
Anne Larilahti, previously Vice President of Sustainability with Finnair and held executive roles in Sustainability at Telia and Nokia. Anne is currently on the Advisory Board of Elite Alfred Berg, an investment company, and also serves as a board member Veikkaus, the Finnish state gambling monopoly.
Key moments timestamps
[01:13]- Anne’s personal and professional journey
[02:30]- How Anne compares the aviation and telecom sectors, where she had her most recent leadership roles in sustainability
[04:18]- Role of Covid and climate change on the aviation industry
[06:49]- Affect on sustainability leadership in publicly listed companies while balancing financial returns
[09:09]- Balancing short term vs long-term regarding moving from fossil fuels to renewables
[12:14]- Collaboration for sustainable development between industries and the executives that lead them.
[14:13]- Balancing financial pressures with sustainability and the role of KPIs
[17:18]- Examples of the impact metrics used in companies from Anne’s career
[18:25]- Examples of any particular sector leading the sustainability torch based on Anne’s experience
[20:21]- Importance of working with not just companies that are sustainability leaders but also laggards
[23:11]- The future of sustainability leadership and Anne’s own future path
“So I don’t even see that there’s a huge balance between being sustainable or being financially sound because, maybe there was, but they’re coming very close. And I think most large companies understand it and if they don’t the market will make them understand.” – Anne Larilahti
[00:00:25] Jaideep Prabhu: Our guest on today’s episode is Anne Larilahti whose recent job was Vice President of Sustainability with Finnair. Before that she was in a similar role with Telia, the Nordic telecom provider. And prior to that, she was Head of Sustainability at Nokia. Anne is currently on the Advisory Board of Elite Alfred Berg, an investment company, and also serves as a board member Veikkaus, the Finnish state gambling monopoly.
Anne, thank you so much for taking the time to talk to us. You’ve been working in sustainability roles for many years now, ranging from various sectors telecom to aviation. Perhaps you could tell us a bit about yourself and your personal journey.
[00:01:13] Anne Larilahti: Sure. And thank you for having me here. Yeah I was brought up to think about things like waste and reuse, like many Finns. I was the kid that was trying to protect the trees when the constructors came in and it’s very much in my blood. But professionally I started with issues on social and economic sustainability while working in the African markets for Nokia. I saw very clearly the positive impact that the company can have on a society. The expansion of telecom’s networks and the penetration on mobile phones had considerable effects on people’s lives.
But it also required that flexibility and innovation from the company to come up with solutions that were then suitable for that type of market. So for example services that enabled an individual use their mobile as a phone booth, selling airtime to others, creating a business for themselves and changes like charging by seconds and not by minutes, like we’re used to here in the sort of more affluent countries. And it became clear to me that what was called corporate responsibility at that time, that it was not only about charity and doing no harm, but it could also be a very powerful business driver and this has pretty much been true in all the companies that I’ve worked with.
[00:02:30] Venkata Gandikota: So I have a two part question. What does it mean to be sustainable in the industries you have been in? So one is telecom, the other is transportation. Can you maybe compare that? Especially the transportation and aviation industry, they’re going through some pretty big changes, the electric vehicle technologies and sustainable fuels and so on. What changes do you see because of these trends?
[00:02:51] Anne Larilahti: Industry definitely has its own challenges and they really need to understand their role in society and the impact that they have both the positive and the negative. These two industries are really interesting because they have very, almost like the opposite impacts.
Whereas transportation has a huge challenge with their climate. It also has a huge upside on the social and economic side. So travel is important for global trade for people learning and quite frankly, peace and living together in this globalized world. And then telecoms and ICT in general on the other hand has a lot offered to fight against climate change, reducing need for unnecessary travel, digitalizing physical things, eliminating logistics and material costs, et cetera.
And then the downsides can be more on the social side, like the dark side of the internet, if you will or our online lives such as negative impacts on children and the young. In terms of changes, there’s a lot and it’s an ever moving area.
So airline industry, like you mentioned a lot happening there. Preparing for increased use of sustainable fuels- biofuels initially, but in the future also fuels produced from carbon dioxide and hydrogen. Electric planes of course are hugely exciting. And yeah, reducing the negative environmental impact airlines gonna keep on delivering on the positive social impact. And that’s really what corporate sustainability is all about finding that balance.
[00:04:18] Jaideep Prabhu: I just wanted to follow up on that because we’ve seen that the aviation sector took a big hit during COVID. And we’ve seen also now pressure building up because of cop 26 and the IPCC report and so on. And there are big pressures to reduce, one’s footprint, whatever sector you’re in, whatever company you’re in.
So how does an aviation company or an airline, how do they balance that? On the one hand, they need to generate revenues to stay afloat. On the other hand, there are these pressures to move into these new areas which require investment and probably risk taking to really find substitutes. So how do they deal with that kind of storm that they’re facing?
[00:04:58] Anne Larilahti: Yeah, when we talk about COVID and climate change, it really strikes me when we’re talking about the new normal, right? Like the life after COVID. but COVID is nothing compared to climate change and the new normal that we are living already and will be living in foreseeable future sort of first accepting climate change and then there is a big fight against it, but at the same time, we also need to stop preparing for just living with it and how we gonna adapt to the big, new, normal, not the post COVID new normal, but in the midst of climate change.
Climate change is the big trend that steers also other trends. So it’s increasing regulation clearly. It has engaged the financial sector to really look at where they invest. And this is such a big driver. I think they got a little bit of a late start, the financial sector, but now when they started, they’re making leaps in their own work.
And then of course, this is what companies listen. Also, customer trends are very clearly now driven by climate change. People do prefer sustainable companies. And this is not to say that there isn’t a lot of unsustainable conception out there still, but the trend is clear. And of course the big player such as Unilever, Volkswagen, Neste and many others are placing really big bets on it.
And finally there’s a trend among employees that is also driven by climate change. Especially the younger generation. So recruiters nowadays need to be ready to answer questions about their sustainability work, ambitions, possibilities for employees to participate. Sustainability is a huge sort of clear competitive edge in the hunt for talent.
And these are not soft issues. These are very financially relevant issues for the company. So it’s not a question of if we should be sustainable anymore, but it is just a question of how we do it best.
[00:06:49] Venkata Gandikota: It’s very well put together. Just reading all these things online and what people are talking and speaking about mirrors what you are also saying just now. Going back to your sustainability experience for the past decade, this has been in big, publicly listed companies, first Nokia then with Telia and then with Finnair, can you talk about, how working and being in a publicly listed company, how does that affect the sustainability leadership in these companies while balancing financial returns?
[00:07:19] Anne Larilahti: Yeah, all the companies mentioned understand really well that sustainability makes you more competitive. Sure it has a cost, but the return is bigger in the long term. And also the cost of not being sustainable is growing all the time. Even just looking at regulation for example, if you look at the EU market, if you’re not sustainable, you’re gonna pay for it.
So it is a financial issue. And then also the big owners, big investors require it. BlackRock of course being the world’s largest asset manager, I think they’re managing something like nine or almost $10 trillion in assets at the moment. And they regard climate risk as an investment risk.
But at the same time, also a sort of a historic opportunity. We always talk about the risk, but there are huge opportunities here as well. In climate change, but in sustainability in general, if you look at the beautiful, sustainable development goals map that the UN has drawn, and you have these 17 colorful boxes that are very easy to think of as challenges, you’re looking at no poverty, hunger and so on, but in fact, those are billion dollar business opportunities, each one of them as well. We need to do things better and who’s gonna do them better? It will be the companies and they need to profit from it. So I don’t even see that there’s a huge balance between being sustainable or being financially sound because, maybe there was, but they’re coming very close.
And I think most large companies understand it and if they don’t the market will make them understand. It’s the financial market. It is the customers and it is the employees.
[00:08:54] Jaideep Prabhu: That’s really interesting. The point you made that the financial sector is now a very important player because they are realizing the long term, perhaps financial risks associated with
[00:09:07] Anne Larilahti: Exactly.
[00:09:09] Jaideep Prabhu: And actually that’s a point that Pia (Nokia) and Salla (Neste) also made that, that shift, they are seeing happen and to a great extent that is yet another driver for companies to change their behavior.
But I’m just wondering in practical terms, you have to balance in a way, the short run with the long run and yes, in the long run, let’s say if you’re an aviation company, you may be able to move to some renewable source of energy, let’s say hydrogen or whatever it is. But in the short run, you’re still stuck with fossil fuels and you’re still stuck, especially with post COVID people wanting to travel more because they were used to it.
So do you see that there will be some short run costs in a sense, or things getting worse before a kind of tipping point happens. So how do you see that transition happen? happening?
[00:09:58] Anne Larilahti: Yeah, that is an excellent question. The timeline is what makes this tricky. You need to find the right timing to do these things. So for example if we look at aviation and if you want to cut emissions in aviation today, the only real thing that you can do is to fly less. And then you lose all those positive things that travel brings. And not only a healthy business but we are actually talking about people here. We’re talking about millions of people being outta work and tens of millions being outta work, actually not only aviation, but the tourism and the related markets.
So that’s clearly not the best way to do it. But then what else can you do? The laws of physics are against that industry and you can’t change it more than is physically possible. So we would need to have a little bit of patience to make sure that these companies are financially sound, that they have the ability to invest once the solutions are there.
Once we have more biofuel, once we have new fuels, once we have electric planes, then we need the investment capability. The question remains how much time do we have from the climate perspective? How long can we wait until we’re beyond the point of return. So it is tricky, but what could help it would be to look at it in a systemic level.
So not only looking at aviation separately, but look at travel and transport, or look at where do we need fuel because we know that the CO2 is coming from the fuel. So where do we need to use the fossil fuels and where could we maybe move into cleaner power sources. So to simplify it, if we need to use the fossil fuels to fly the planes, let’s do that, but let’s make sure that the road transport moves to electric electric, as soon as possible.
So that the little bit of biofuel that we have, let’s put that to the tricky parts and electrify what we can already today. So it, it needs the systemic thinking. And that’s very difficult because you don’t have a head of systemic energy use in the world, but you have different countries and you have different industries and you have different interest groups. So it’s very hard to get to what everybody probably thinks is a logical way of moving forward. But it is tricky.
[00:12:14] Jaideep Prabhu: So I’ve heard about this point you’re making this sort of systemic point that really you have to have so many different players in a sense, move together for the change to happen. And there isn’t any obvious mechanism to do that. So you end up seeing a lot of partnerships and we’ve heard about a lot of businesses that form consortia to deal with some specific issue.
I’m wondering if you had any thoughts on that? How businesses maybe organizing within sectors or even across sectors, across geographies to try and address some of these systemic problems. Any examples you may have from your own experience would be really interesting to explore.
[00:12:54] Anne Larilahti: Yeah I think the cross industry collaboration is key now. We are very used to collaborating within industries and driving our agenda per that industry. But when you look at the challenges, they are so complex now that you had to reach across industries. One really cool coalition is something called Nordic CEOs for sustainable development.
I think it’s about 20 different companies and it is the CEOs actually who sit down and meet and try to figure out that how can they move the needle? What can they do in their own companies, other opportunities to collaborate across industries.
And also they’re putting the messages out there also towards the Government to say that, okay, this is what we are doing. What should you be doing? Are you sure that government purchasing for example is up to scratch to what is needed now and are your own work on the level that you required from companies, are you creating policies that really move the needle?
So I think that’s a really interesting cooperation and the fact that they’re talking about sustainability, they’re talking about mainly about climate change and diversity. And it is the CEOs. It is not the sustainability leaders of these companies, but it is the CEOs that are driving this.
And that’s a big change from 10 years ago very few CEOs were interested.
[00:14:13] Jaideep Prabhu: So far we’ve been talking quite a lot about environmental sustainability and the financial pressures of growth and so on, but you’ve also alluded a few times to the social. So when you were saying how, when you worked in Africa, you saw there was this social component to make a big positive impact with products, like mobile phones, you mentioned with transportation, there’s a social element you know generates jobs, helps people travel. And you just mentioned that the CEO round table also focuses on diversity issues. And that’s something that’s come up again and again in our podcast, some people even have a title, which is about diversity, inclusion and sustainability.
So I’m just wondering what your thoughts are on that? It’s almost makes it even more interesting or challenging, cuz you don’t just have financial pressures of growth with environmental sustainability issues, but you almost have a third part for a triangle, which is the social. So how do you manage that? Do you just have more metrics around these and then how do you balance the metrics or the KPIs?
I just wonder if you could perhaps tell us a little bit about your thoughts on that front.
[00:15:24] Anne Larilahti: Yeah. The main reason or two reasons why I think the focus is on climate is of course the urgency of the matter. But the second reason is that our ability to measure it, right? Measuring CO2 is physics. It’s easy. You can put numbers on your Excel and create targets, some follow up progress and all that good stuff.
So no wonder also the financial sector focuses on climate change. They do love their numbers and it makes it possible for them to somehow evaluate the companies and compare them with each other.
And then it gets much more complicated already in other aspects of environment as well. Biodiversity is a huge challenge, but much harder to measure.
On social side, we can fairly easily measure diversity, at least if it’s simple diversity, right? Maybe male, female. But if you go any deeper than that already in many countries, you are not allowed to collect information on people’s nationalities or backgrounds or anything like that.
So it gets a little bit complex. But then already inclusion, which is usually grouped with diversity, inclusion is a lot harder to measure. What does it mean? What is an inclusive company? Similarly, it’s fairly easy to measure workplace accidents, but how do you measure employee wellbeing?
So, new ways of measuring are clearly needed but sometimes I think when we are on the way to that, we just need to accept the fact that we are using more qualitative measures and we go at it in a more sort of values based way, rather than having exact numbers. You can’t say that it’s less important just because it’s more difficult to measure but that’s what often happens because what gets measured gets done is the old credo. And then when you have this stuff that is hugely important, but’s hard to measure, it easily takes a backseat. So it needs sort of special attention also from the leadership of the companies to make sure that it’s not buried under the numbers on climate.
[00:17:18] Jaideep Prabhu: That’s really interesting. I wonder if I could just ask you about the companies you’ve been in, do they actually measure all these different things? And are they moving towards it and then how do they report on all these different dimensions? How does that work these days?
[00:17:33] Anne Larilahti: I guess the hard to measure things, either you use an existing proxy, an index or a ranking out there, which sort of gives you some kind of an idea how you compare against others and so on. So that’s done. Also we’ve created indices within the company trying to understand what constitutes wellbeing for employees, for example and measuring those more exact things and then create some kind of an index on it. And yeah, I guess it’s mathematicians who say that all the models are wrong, but some are useful. So this is the case with it.
So as long as you have something that is transparent, what you’re measuring and you keep measuring the same thing from year to year, it is useful. It’s not perfect, but it is useful. So you just need to come up with ways of doing it. And then there are some good proxies out there that you can use, the Bloomberg gender equality ratings and so on.
[00:18:25] Jaideep Prabhu: So I actually, just one question before I hand it back to Venkata. Anne you’ve been in three very important sectors and you’ve been involved with sustainability in all these sectors. What are your thoughts on which sectors are really leading? So you mentioned finance as well are driving this change and which sectors are probably going to find it harder because maybe the obstacles are more serious or difficult to really make change happen. I wonder if you could perhaps talk from your experience about where it’s easier to make change, where it might be harder.
[00:19:01] Anne Larilahti: Yeah. Especially on sustainability, I think ICT has been on the case for a long time. And for the simple reason that it’s good business. Going back to the social sustainability and the social impact in the developing countries that is very clear, you make good business, but at the same time you are really helping people.
And that of course it keeps a warm and fuzzy feeling also to the CFO and starts that, thinking that, okay, this is not something that I give out from my bottom line. This is how I grow my top line. So I think ICT has been working on this for a very long time. We see at the moment some of the consumer goods companies, Unilever, of course, has been doing it for a long time.
Car industry is going through an incredible transformation. Their whole base of business is slipping out from under them. And they’re building something new. Similarly food. If you’re really focusing on meat, it’s a good time to start looking at alternatives.
I see a lot of industries like that really waking up now, textile as well, a lot of innovation happening there.
And then, going back to transport and aviation, especially it is doing a lot, but it is still the poster child of climate change. And there we go.
But I think in seven to 10 years, people are gonna see a very different industry on that one as well.
[00:20:21] Venkata Gandikota: So just building on that, and I also was fascinated by this LinkedIn post you made a few months ago. You said I’m quoting you from within that post it’s “it is important that sustainability professionals get involved with the bad and the blacklisted companies. We can’t only work with companies providing amazing, shared value, but we also need to recognize the importance of being less bad. It’s not as glamorous, but it is a steps towards bigger change.”
You have been involved with Veikkaus (Finnish gambling monopoly) and Finnair. And both of them have, which you alluded to a little bit earlier, a bit of like negative public perceptions. Veikkaus being for social issues because of the gambling thing, and then Finnair because of these greenhouse gas emissions.
So can you explain on this a bit more, what you said in your LinkedIn post and then how it can be connected to the future of sustainability leadership role in businesses.
[00:21:11] Anne Larilahti: I guess I have to admit first that when I was talking about bad companies, it was a little bit provocative I don’t know any bad companies per se. I don’t think there is a real life Simpsons, Mr. Burns, somewhere going yeah, I’m just gonna get everybody’s money and so on.
But but there are definitely industries that are complex. But I personally always enjoyed working with companies that do have challenges because I do think the sustainability professionals should strive for impact. And if I work in a company that is very sustainable, that is doing everything really well already, my impact will be tiny. The marginal value that I can create is going to be small. But then in the company that is still in the beginning of their sustainability journey or does not even yet see the value, even small improvements create a big impact and set the ball rolling. Because it’s a little naive to think that we should just today stop producing tobacco, drilling for oil, raising cattle, or flying.
Personally, I’d be happy to see tobacco disappear, but the fact is that it will not do that overnight. If ever. So those companies need to transform and find a future proof path for themselves. And sometimes that could mean totally changing your business model and your products. And it’s as much better to drive those changes from within to, I want to have good sustainability people inside those companies. I’d be really worried if there weren’t any.
But having said that we also do need drivers outside of the companies, right? The NGOs and the activists and so on. They have an extremely important role to play in pushing companies to be transparent. And maybe even more importantly, make them move faster. Because although companies the good and maybe not so good have set really ambitious targets for themselves, at least from the climate point of view, reading the results from Glasgow, it looks like it’s not enough or not soon enough.
So. To gain that speed required, we need to work in all levels of society inside and outside of the companies, challenging the companies, creating sensible regulation and personally making smart purchasing decisions.
[00:23:11] Jaideep Prabhu: That’s a really powerful statement. I wonder if we can end with your personal thoughts on the profession of sustainability leaders within companies and perhaps your own future path. Where do you see that heading? Where can you make the most difference and impact?
[00:23:27] Anne Larilahti: This is a profession that is completely different now than it was say 15 years ago. Then me and my colleagues, we were banging on doors trying to get people to listen to us being belittled called tree hugging hippies in a corporate email. But but now it’s very different. Now we sit in the management teams, we sit in the boards and that just shows how the world is changing and how this profession is changing.
And at the moment it is hot. There’s a risk to that though, because then everybody wants to do it. And if you don’t have the required understanding and the required competence on it then we flirting with greenwashing and whitewashing again.
But the good thing is that the companies are really starting to understand the value of sustainability for license to operate, but also as a business driver. So it’s an exciting profession to be in. It’s also very addictive. I can’t really see myself working in a position that doesn’t have this element to it.
But I have to say that there’s also this change, that it’s not only the sustainability professionals that are working with sustainability.
It’s quite hard to go into a management team of any company and find a person that doesn’t work with sustainability. It is part of everybody’s job and it should be. Let’s see where we are in 10 years. I think we’ve solved the problems that we have now. And then we have a bunch of new ones that we are struggling to solve. And that’s how it works. It is a moving target.
[00:24:48] Venkata Gandikota: If you’re having new problems, then it means that progress is being made. So current problems are solved. Progress has been made.
[00:24:53] Anne Larilahti: Exactly.
[00:24:54] Jaideep Prabhu: I just wanted to thank you for a really interesting conversation. Very thought provoking, inspirational and also getting into some tricky weedy issues, really difficult issues that companies are grappling with. So thank you so much for that.
[00:25:07] Venkata Gandikota: Agree.
[00:25:07] Anne Larilahti: Thank you so much for having me.
Venkata Gandikota is a frugal innovation and impact investing evangelist and Prof Jaideep Prabhu is a Professor of Marketing at Cambridge University’s Judge Business School and co-author of an award-winning book on frugal innovation.
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